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Banks involved in high-risk, high-return investments that are largely unregulated

Breaking the Boom-Bust-Bailout Cycle
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High Risk

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CRASH

Banks back doing OLD high-risk, high-reward practices, have added new risky practices, and are once again posting billions in pro t.

U.S. Government bailout – taxpayer dollars

No reform

FINANCIAL DEBACLE OF 2008
Rapid and Dramatic Change in Market

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No Regulation

Opaqueness

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CREDIT DEFAULT SWAP DISASTER

FINANCIAL DEBACLE OF THE FUTURE?
Rapid and Dramatic Change in Market

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Opaqueness

No E ective Regulation

HIGH FREQUENCY TRADING SYSTEMIC DISASTER?

RAPID AND DRAMATIC CHANGE IN MARKET
High frequency trading has increased from

30 to 70 %

of daily volume

Dark pools have gone from

1.5 to 12%

of daily volume

Flash orders, co-location of servers, sponsored access – all arose without prior regulatory approval

NO EFFECTIVE REGULATION
“There is much more to be done in the areas of frontrunning, manipulation, abusive short selling, and just having a better understanding of who is moving the markets and why. …In its place are now two or three or maybe four regulators, all looking at an incomplete picture of the market and knowing full well that this fractured approach does not work.”
- Rick Ketchum, Chairman & CEO, FINRA October 27, 2009

THE SEC WILL ONLY BEGIN TO REVIEW HIGH FREQUENCY TRADING NEXT YEAR…

WHERE IS THE SENSE OF URGENCY?

OPAQUENESS
“There are impediments to regulatory e ectiveness that are not terribly well understood and potentially damaging to the integrity of the markets.” “We need more information on the entities that move markets — the high-frequency traders and hedge funds that are not registered. Right now, we are looking through a translucent veil, and only seeing the registered rms, and that gives us an incomplete —if not inaccurate —picture of the markets. In short, there is a lot of work ahead, but not a lot of time.”
– Rick Ketchum, Chairman & CEO, FINRA October 27, 2009

WHERE IS THE SENSE OF URGENCY?

HIGH FREQUENCY TRADING SYSTEMIC RISK
“At 1,000 shares per order and an average price of $20 per share, $2.4 billion of improper trades could be executed in [a] short timeframe…The next ‘Long Term Capital’ meltdown will happen in a ve-minute time period.”
- John Jacobs, Director of Operations, Lime Brokerage June 30, 2009

“[Sponsored access] presents a variety of unique risks and concerns, particularly when trading rms have un ltered access to the markets. These risks could a ect several market participants and potentially threaten the stability of the markets.”
- Elisse Walter, SEC Commissioner October 21, 2009

WHERE IS THE SENSE OF URGENCY?